Snowflake Stock Is Tumbling on a Disappointing Forecast. The CEO Has an Explanation.

For the quarter, Snowflake posted revenue of $383.8 million, up 101%, and ahead of the Wall Street consensus forecast of $372.6 million. Product revenue in the quarter was $359.6 million, up 102%, and ahead of the company’s guidance range for $345 million to $350 million. (Snowflake does not provide overall revenue guidance.) Non-GAAP product gross margin was 75% in the quarter. Adjusted free cash flow was $102.1 million, or 27% of revenue.

Snowflake CEO Frank Slootman said in an interview with Barron’s that the quarter was “exceptional,” but he conceded that revenue beat guidance by a little less than in other recent quarters.

Slootman said one reason that is tied to the company’s unusual consumption-based revenue model—customers pay for the compute time they use, no more, no less. And Slootman notes that a tweak to the software in January allowed customers to do the same workloads with less resources—he said the adjustment cost the company about $2 million in just three weeks in January. “This isn’t philanthropy,” he says, noting that the change will eventually benefit the company. “When you make something cheaper, people buy more of it,” in this case compute time. Slootman notes that the company, which once sold compute time by the hour, now sells it by the second.

But he also notes that Snowflake had “incredible sales performance in the quarter,” and secondary metrics make his case. The company said its net revenue retention rate, a measure of repeat business, was 178%, which was up from 173% in the October quarter. Remaining performance obligations were $2.6 billion, up 99% year-over-year, accelerating from 94% growth one quarter earlier. The company now has 5,944 customers, including 184 with trailing revenue of more than $1 million—up from 116 just one quarter earlier.

For the full year, product revenue was $1.14 billion, up 106%, while adjusted free cash flow was $149.8 million, up 12%.

For the April quarter, the company sees product revenue of $383 million to $388 million, up between 79% and 81% from a year ago, about flat sequentially, but a little above the Wall Street consensus at $382 million. The company expects an operating margin in the quarter on a non-GAAP basis of negative 2%, which compares to positive 5% in the latest quarter on the same basis.

For the full year, Snowflake is projecting product revenue of $1.88 billion to $1.90 billion, up 65% to 67%, falling short of analysts’ consensus estimate of $2 billion, with operating margin of 1% and an adjusted free-cash-flow margin of 15%.

Slootman notes that the company is taking a conservative approach to guidance—he points out that the original outlook for the January 2022 fiscal year was 80% growth, and the actual increase was 26 percentage points higher. He points out that the company has signed up a slew of new customers that are just coming on board and so far haven’t generated any revenue at all, and he says the company is not going to get aggressive projecting revenue from customers that so far have no history on the platform.

Snowflake today also announced the acquisition of Streamlit, a San Francisco-based company that provides software to make it easier to create data visualization applications on top of the Snowflake platform. While not disclosed in the press release announcing the deal, Slootman says the company is paying $800 million, 80% of that in stock, and the rest in cash. He says the deal won’t add any significant revenue, but will add about $25 million this year in operating expenses, costs that are already reflected in guidance.

Even with the stock’s late-trading drop, shares are trading at about 34 times the forecasted current-year sales, a valuation that few other companies can match.

Write to Eric J. Savitz at [email protected]